Difference Between Deregulated States and Regulated States

Difference Between Deregulated States and Regulated States

By Leo Eigenberg

If your electricity company operates in multiple states or electricity grids, then there’s a chance you are operating in both a regulated and deregulated market. It’s important to understand the differences between the two market types when choosing an energy provider. Here is an overview of the different markets:

Regulated

A regulated market, much like the name implies, is when the entire market is controlled through vertically integrated monopoly utilities that are overseen by public regulators. It’s up to the utility to generate power, send it to the grid, and get it to customers. Customers in a regulated market are unable to choose an energy provider and can only deal with the utility in the area. Most markets in the southeast, northwest, and west are regulated ones.

Deregulated

In the deregulated market, participants other than utilities are able to own power plants and transmission lines. This means power generators sell their electricity into a wholesale market, from which retail energy suppliers can purchase the energy and sell it on to customers. The transmission grid is owned and operated by transmission companies and utilities. A deregulated market is managed by independent systems operators (ISOs) or a regional transmission organization (RTO). There are still utility companies working to ensure power is distributed and everything is running smoothly.

The deregulating market has open competition from independent power producers in the 24 markets, including Texas and most of the north-eastern states. Many of these states have also introduced the idea of retail choice that allows residential and industrial consumers to choose an electricity provider. Customers in these states have greater choice and more competitive rates, including with renewable energy. It gets a little complicated as some states, including California, are only partially regulated. There are several reasons for this, so be sure you know what to expect in your own state.

It can be difficult to develop a renewable energy project in a regulated state. It might even be impossible. Of course, you can still get renewable energy if you need it. You may have to enter into an agreement with a power provider outside of your state, but the possibility is there nonetheless. If anything, choosing to “outsource” your energy like this may encourage other states to adopt a more open market.

Summary

The main difference between a regulated and deregulated state is who is in control of the power and how much choice consumers have. Consumers in regulated states have no choice over their power supplier, but are guaranteed power. Consumers in deregulated states have more choice, can get better rates, but run into the risk of things such as energy manipulation and other bad practices.

If you live in a deregulated market, then you can expect plenty of choice. You may be able to have renewable energy directly included in your supply contract. A business in a deregulated state can even enter into an aggregate demand agreement to establish larger projects than they would have by themselves. Deregulated states also provide plenty of flexibility.

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